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Legislative Council - Fifty-Second Parliament, Second Session (52-2)
2013-11-13 Daily Xml
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RETAIL AND COMMERCIAL LEASES (MISCELLANEOUS) AMENDMENT BILL

Introduction and First Reading

The Hon. J.A. DARLEY (17:57): Obtained leave and introduced a bill for an act to amend the Retail and Commercial Leases Act 1995. Read a first time.

Second Reading

The Hon. J.A. DARLEY (17:58): I move:

That this bill be now read a second time.

The proposed bill was first drafted in 2010, and there is no question that it has been the subject of some long and ongoing discussions since then. To her credit, the minister responsible for this portfolio at the time agreed to consider my bill. Unfortunately, soon after negotiations began, minister Gago was moved on to a new portfolio and so the discussions had to start all over again with a new minister, this time minister Koutsantonis.

Unfortunately, some time later, he too was moved on from his portfolio and I was back to square one with the current minister, Tom Kenyon. This matter certainly did not benefit from the fact that there have been three changes of ministers since September 2010. Nevertheless, I am pleased to say that minister Kenyon has been giving some long overdue consideration to this matter and I certainly hope that this will translate to support for the bill.

For the benefit of all honourable members and by way of background, on 14 November 2010 I moved a motion to disallow regulations under the Retail and Commercial Leases Act as gazetted on 26 August and tabled on 14 September. The changes took effect from 4 April 2011. Prior to the regulatory changes, the Retail and Commercial Leases Act explicitly prevented lessors from passing on land tax to their tenants, except in instances where the rent payable under the lease exceeded $250,000 or, if a greater amount was prescribed by regulation, that other amount.

If the rent payable under a lease exceeded $250,000 then the land tax payable for the premises could be passed on to the lessee. The effect of the variation under the regulations was to increase the rent threshold from $250,000 to $400,000. That is an overnight increase of $150,000. As a result, lessors who had previously been able to pass on land tax under existing lease arrangements with a rental over $250,000 but under $400,000 were no longer able to do so, at least not in an open and transparent manner.

The variation brought with it many unresolved issues. In fact, it resulted in more questions than it did answers. For instance, it was the government's intention that the variation would only relate to leases entered into on and from 4 April 2011, yet this was not reflected in the regulations. The regulations also failed to address whether the prescribed rent threshold was inclusive or exclusive of GST. There was no clear guidance in relation to what would constitute a new lease.

There was uncertainty as to whether a lease renewal would constitute a continuing lease or a new lease. There was uncertainty as to whether a lease that operated prior to 4 April and required payment of annual rent in excess of $250,000 would be captured by the variation. There was uncertainty as to whether a lease which was captured by the act on its commencement date could cease to be governed by the act during the term of the lease because it exceeded the rent threshold.

Similarly, there was uncertainty as to whether a lease which was not governed by the act on the lease commencement date could later become governed by the act due to a change in circumstances. There were no transitional provisions regarding the implementation date at all. It is for these reasons that I tried to have the regulations disallowed at the time that they were introduced, but even that would have potentially created difficulties in that it would have impacted leases entered into in the interim period.

The variation inevitably resulted in a court challenge dealing with some of the very questions that we were raising at the time of the change. In the landmark case of WST Pty Ltd v GRE Pty Ltd & Ors the Full Court of the Supreme Court considered whether the lessee of the Buffalo Motor Inn was liable to pay to the lessor land tax assessed against the lessor from 22 May 2011 and for the remainder of the 10-year term of the lease and any renewal thereof. In that case the plaintiff had entered into the lease in 2006 (prior to the variation) for a period of 10 years, with a right of renewal for a further 10-year period.

Counsel for the plaintiff argued that the legislative scheme should not have been construed in such a way that would erode or take away the accrued or vested right that the lessor obtained at the time of entering the lease. In effect, they argued that the land tax should continue to be payable despite the increase in threshold. The court rejected this argument. It held that the lessee was not liable to pay the land tax claim by the lessor because at all relevant times the lease was and remained a retail shop lease to which the Retail and Commercial Leases Act applied.

In answer to the question of whether the lessee was liable to pay land tax to the lessor from 22 May and for the remainder of the 10-year term of the lease and any renewal, the court found that the answer depended on the amount of rent payable during any particular period and the relevant threshold as fixed by section 4(2)(a) of the act and the accompanying regulations. If at any time the annual rent exceeded the then applicable threshold, the lessee would be liable to pay land tax assessed on the land. That meant that, in the event the annual rent payable under the lease in question exceeded the $400,000 threshold, the lessee would be liable to pay land tax.

The decision was regarded as a significant win for lessees, particularly as it provided a protection under the act to all lessees with an annual rent of less than $400,000, regardless of when the lease was executed. However, according to some legal commentators, there remains a great level of uncertainty because the court did not consider all the questions that I referred to earlier.

Turning now to the bill itself, I am proposing that we do away with thresholds altogether in so far as they relate to land tax liabilities and instead allow retail shop leases to pay the amount of land tax that would be payable based on what is known as a single holding rate. Where the shop in question is the only premises owned by the landlord, the single holding rate is an amount equal to the amount of land tax payable in relation to the shop.

Where the landlord owns more than one premises, the amount to be paid will be an amount equal to the amount that would be payable were the shop the only land owned by the landlord; that is, it will not be based on the aggregated taxable value of all of the landlord's premises. This is intended to ensure that tenants are not footing the bill for more than they have to.

The bill also contains transitional provisions which make it clear that the legislative changes would not apply to leases entered into before the commencement of any relevant provisions. It is important to bear in mind—and I know this has certainly been raised with me—that this is a cost neutral proposal in terms of any revenue impact. In practice, RevenueSA will calculate the total tax payable for the premises in question and it will be the owner's responsibility to apportion the tax to the appropriate tenancy. Details concerning apportionment for each tenancy are available on request from the Valuer-General. This is not a new concept; it is a service that the Valuer-General's office has been providing since 1979.

I would urge the government and the opposition to give serious consideration to the bill. There is not a landlord in the state who is not in one way or another passing on land tax indirectly to their tenants. The reality is that, rather than creating a more open and transparent system, the increased threshold has forced more landlords to pass land tax liabilities on to tenants as rental increases. This does nothing to help people who are trying to run a business. They need to know what their true outgoings are so they can make sound business decisions. This bill is about ensuring that all cards are laid on the table and that the costs associated with running a business are presented in an open and transparent manner.

Debate adjourned on motion of Hon. D.W. Ridgway.


[Sitting suspended from 18:09 to 19:47]


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